LINKING LOCALLY
PRODUCED LPG PRICES WITH SAUDI ARAMCO CONTRACT PRICE IS FEARED TO HIT
THE POOR.

INTERVIEW:
IQBAL Z AHMED, CHAIRMAN LPG ASSOCIATION OF PAKISTAN

Jan 22 - 28, 2007

The Pakistan government's decision to
introduce parity prices for alternative fuels on the advice of the World Bank is
bound to lead to substantial price increases and consequent negative
socio-political ramifications.

In pursuance of parity prices policy,
the linking of the prices of locally produced Liquefied Petroleum Gas (LPG) to
the Saudi Aramco Contract Price (CP) will lead to increase LPG prices at
producer level by 39 per cent and retail prices by 58 per cent in next two
months and hit the poor consumers in the country very hard.

"The policy of parity prices for
alternative fuels is detrimental to the population as well as hostile towards
Pakistan," said Iqbal Z Ahmed, Chairman LPG Association of Pakistan.

The LPG was a deregulated industry and
the market forces including gas producers, distributors and consumers were
determining the price factor, which is the soul of the concept of free economy.
On the other hand, the deregulation policy in the LPG sector announced in 2000
was also attracting a huge investment. Some 40 new LPG marketing companies had
come forward injecting $350 million in this business resultantly become
instrumental in invigorating the economy on one hand and generated huge
employment opportunities on the other hand.

"So instead of deciding LPG
prices, the government should focus on bringing this sector into a regulatory
ambit to ensure elimination of sub-standard practices and offering level playing
field to all stakeholders," he said.

Saying that some 1,600 metric tons LPG
is being locally produced on daily basis, Mr. Ahmed believed that Pakistan had a
potential to produce additional 1,000 metric tons LPG per day and consequently
earn a huge income. He stressed that the government should also focus on
enhancing indigenous production of LPG as consumer base in this sector was
increasing at a fast pace of 15 per cent per annum.

He expressed concern that the Pakistan
government had so far remained unable to notify safety rules in the LPG sector
despite the fact that the federal cabinet had approved it on September 15, 2005.
He said it was high time that the government should encourage the setting up of
LPG fuel stations and eliminate highly unsafe decanting practices in the
country. "If unsafe decanting practices are eliminated, then the LPG is
more safe, efficient and clean burning poor man's fuel," he added.

Answering a question about problems in
the LPG sector, Mr. Ahmed, who is also Chairman of the Jamshoro Joint Venture
Limited (JJVL), Lub Gas (Pvt) Limited and Mehran LPG (Pvt) Limited, said the
government should rationalize its latest policy by returning to the year 2000
deregulation policy. He said the LPG industry had opportunities and potential to
attract US$500 million to US$1 billion market per annum.

Referring to the growing difference
between regulators and regulated, he called to curb this trend through in-depth
discussions and seminars among LPG industry regulators, producers and marketing
companies.

Answering a question about Prime
Minister Shaukat Aziz's recent decision with regard to the introduction of LPG
pricing parameters in revision of its previously notified policies, Mr. Ahmed
said the LPG Association of Pakistan had strongly objected to the decision and
wrote a letter to the Chairman of the Oil and Gas Regulatory Authority (OGRA),
besides sending its copies to the President and Prime Minister.

He said the LPG Association of Pakistan
was aggressively approaching the government that the principle of linking local
production to Saudi Aramco Contract Price would lead to serious negative impact
on the LPG industry as a whole, besides creating socio-political ill will. He
said it would also hamper local consumption, discourage investment by crowding
out new marketing companies, encourage deforestation, encourage greater use of
CNG thereby putting an additional strain on already tight natural gas supplies,
and putting planned investments on hold.

Under the LPG Producer Pricing Policy
2006, he said, the producer as well as consumer level prices would increase
sharply and burden the common man. Giving statistics, he said, the total
ex-plant producer level LPG price Rs28,848 in December 2006 would increase to
Rs34,471 in January and Rs40,083 in February 2007 - representing an increase of
39 per cent.

Similarly, he said, the policy would
badly impact on consumer prices as the difference between the average prevalent
price of Rs450 per 11.8kg LPG cylinder in December 2006 would rise to Rs711 in
February 2007, representing an increase of 58 per cent.

Mr. Ahmed said the government was also
considering a proposal to allow marketing companies to sell a mix of imported
and local products in 20:80 ratio. He said this move would raise LPG prices even
higher.

Stating that significant investment had
been made in LPG marketing infrastructure since the deregulation of the sector
in 2000, he said, the OGRA factor in the cost of primary transportation from
production source to bottling plants at an average rate of US$50 per metric ton
as well as minimum margin of US$150 per metric ton for marketing companies to
cover costs of operations, depreciation, financing, tax liabilities, marketing
and selling expenses, utility bills and company margin would ensure economic
viability of marketing companies.

"It will be difficult for
marketing companies to operate on margins below the above mentioned levels and
any pressure from the government or any regulation thereof will be unsustainable
and lead to malpractices," he suggested.